SINGAPORE (Mar 20): UOB Kay Hian, as a listed company, has been in the news recently for another reason. UOB Bank is now its single largest shareholder, with a stake of 38.14%. Separately, Wee Ee Chao, UOB Kay Hian’s chairman and managing director, has been steadily buying up shares of the company from the open market. The most recent purchase was made on March 18, with 128,200 shares bought at $1.13474.This means Ee Chao now owns 29.74% of the company — a hair’s breadth below the 30% general offer (GO) trigger point. Is a privatisation of UOB Kay Hian in the works?
“Personally, I take the view that I am a director of the company, and I don’t own a single UOB Kay Hian share, mainly because of disclosure reasons. If you are not careful, you will trip up,” says Choo, referring to the blackout periods before and after the quarterly reporting where company directors are not to trade their own shares.
Choo says there is no clear answer if the bank, which is run by Ee Cheong, the elder brother of Ee Chao, is considered concerted parties. If so, then there is no issue of triggering a GO as the two stakes combined, at nearly 70%, is already above the next trigger threshold of 51%. “I don’t really know. Even if I ask [Ee Chao], he won’t tell me,” says Choo with a laugh.
However, there is something Choo is sure of. As at March 18, UOB Kay Hian’s share price of $1.13 is at 0.62 times the net asset value of $1.832 as at Dec 31, 2019. The company is relatively conservative with its dividends — paying out just around half of the earnings each year, and shunting the remaining half to the pile of retained earnings. In dollar terms, UOB Kay Hian, as at Dec 31, 2019, has a net asset value of $1.5 billion — and most of this sizeable asset base is put to very good use.
“We have quite a big footprint of very active operating units. They all need cash. We have our trading needs, our lending needs. We are very active there,” says Choo.
Working capital aside, will UOB Kay Hian tap some of this $1.5 billion to nudge further consolidation in this industry? Not all local brokerages are making money — and this might just be a possibility. UOB Kay Hian, with a market leading share of a quarter of the retail brokerage business, is presumably an acquirer if further such actions take place.
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Such a move might be indirectly inspired by what is happening in the leading markets. US discount broker Charles Schwab, for example, has introduced a zero-commission fee, challenging competitors to do the same, and it is attempting an acquisition to strengthen its hand.
Choo points out that Charles Schwab runs on a different business model. In return for zero commission fees, clients are obliged to buy certain products, take out margin financing, or pay for advice. “Our is a very straightforward way of charging. So far, we are still doing quite a good business,” he says.
However, there are weaker local players who might find the current situation untenable. “We believe that there will be more consolidation in Singapore as competition has led to an unsustainable price level for a number of local players given our current volumes,” says Choo.
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“To survive you will need scale to serve increasingly discerning clients. With margin pressures, many of the smaller brokerages do not have the necessary scale to compete effectively,” he says.
Connecting with a younger investor base
Even with its market reach and five decades of history, UOB Kay Hian is happy to work with much smaller, much younger partners. For example, it has an exclusive distribution agreement with fund investment platform Endowus. Set up just a couple of years ago, Endowus has won approval from the regulators to launch a feebased portfolio service that can tap CPF money (see “Endowus to help fix the ‘CPF investment problem’ with low-fee portfolios” on page 6).
“They are very good at what they are doing, they are very hungry, they have very strong marketing sense and they are very extremely progressive. An established company like ourselves should not isolate ourselves from startups. We need to see how they do and we can learn from each other, and think ahead and connect with a younger group of investors,” says Choo.
Endowus, as Choo explains, is a very efficient way for investors who are aiming for a consistent 7–8% returns from a broadly diversified portfolio. “In fact, now is a good time to put money with Endowus now that market corrected so much,” he reasons.
By trying to channel retail client money into products such as those offered by Endowus, won’t that run the risk of diverting funds that could have been handled by UOB Kay Hian’s own remisiers? Choo is sensitive to this possibility, but he maintains that there isn’t a lot of “crossover” in that piece of the business. The likes of Endowus attract younger investors, who are starting to put aside some of their CPF money so that they can take advantage of the market at the right time instead of timing the market. “It is a different segment of the market,” he explains.
He sees such an investment strategy possibly growing in popularity. “As we approach 50, 60 years old, we start to plan — what am I going to do for income when I retire? I got a pot of CPF money. Why don’t I put some of the CPF at work, to get steady stream of income to finance my lifestyle?’”
This shift in investment behavior might influence how UOB Kay Hian itself might change the way it will do business for its next 50 years.
While investment as an activity will remain a “constant preoccupation”, it may simply be harder to make “super profits” by traditional stock picking. Therefore, relying on a software-driven investing strategy, as what Endowus is doing, might just be the way to help broaden the range of products UOB Kay Hian can offer to potential clients. Choo declined to say for now how much UOB Kay Hian has helped generate in AUM for Endowus. “It is encouraging, and I think we can do better ourselves,” he says.
